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Pembina to pocket $350 million after terminating acquisition of Inter Pipeline

Pembina to pocket $350M

Pembina Pipeline Corp. will pocket a $350-million break fee after terminating its acquisition of Inter Pipeline Ltd.

The move comes after Inter Pipeline's board advised that it would no longer recommend shareholders support the deal after rival Brookfield Infrastructure Partners LP upped its hostile takeover bid for the Calgary-based Inter Pipeline.

Pembina CEO Mick Dilger said he was disappointed with the outcome.

"The industrial logic of a combined Pembina and Inter Pipeline remains unparalleled and the value creation between certain of our assets is impossible to replicate by any other entity," he said Monday in a news release.

Inter Pipeline had resisted Brookfield's bid after signing a friendly all-stock deal to be bought by Pembina. That agreement would have seen its shareholders receive half a Pembina share for each Inter Pipeline share they hold.

Prominent shareholder advisory firm ISS recommended that Inter Pipeline investors reject the company's proposed sale to Pembina and instead support the takeover by Brookfield after Inter Pipeline's largest shareholder upped its offer to $16 billion, including debt.

Dilger said the company will continue to seek opportunities for growth through "focused acquisitions."

"Pembina remains optimistic about its future, including the profitability of our existing business given foreseeable sector tailwinds, as well as with tremendous flexibility to pursue an ever increasing and more diverse set of opportunities for growth, some of which we were able to highlight and advance during this process."

Inter Pipeline said it is open to working with Brookfield to reach a "mutually agreeable transaction."

The change in tone comes nearly two months after Inter Pipeline entered into a friendly $8.3 billion all-share deal with Pembina equal to $19.45 per share in response to the hostile offer from Brookfield that Inter Pipeline said undervalued its business.

Brookfield subsequently raised its cash and share takeover offer to $19.75 per share, up from its earlier proposal valued at $16.50 per share. It later revised the offer by giving shareholders the option to receive their entire payment in cash, instead of a mix of cash and shares, if they desire.

Brookfield extended its offer to Aug. 6 after the Alberta Securities Commission ruled in favour of Inter Pipeline and Pembina in a decision that was critical of the tactics used by Brookfield Infrastructure in the takeover fight.

The securities regulator upheld a $350-million break fee that Brookfield had sought to have cancelled.

It said Brookfield Infrastructure used "abusive'' tactics in its attempt to buy Inter Pipeline and ordered the company to provide additional disclosure related to total return swaps it holds that give it economic exposure to Inter Pipeline's shares.

The regulator also raised the minimum tender conditions of the Brookfield Infrastructure offer to 55 per cent from a simple majority of the shares tendered by shareholders other than Brookfield and those acting in concert with it.

Brookfield again raised its offer in mid-July to $20 in cash or 0.25 of a Brookfield Infrastructure share for each Inter Pipeline share, with a cap on the number of shares that are available.

Brookfield says assuming shareholders select the higher value Brookfield Infrastructure share option resulting in 68 per cent cash and 32 per cent share proration, the offer is valued at $21.23.



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